Getting paid under the table. Working under the table. Perhaps you have heard these phrases before. Does it mean you will spend a number of hours doing daily tasks while seating underneath a large table? Of course not! These are phrases that have been coined to describe undocumented employment. In other words, an employee is working “under the table” if the employer does not report the employee’s earnings to the government.
So, how do you know if you’re getting paid under the table? Watch for the following “signs”:
You will not have to complete required government forms such as your W-4 and I-9 before starting the job
You will not have taxes deducted from your pay
You will most likely be paid in cash
You won’t receive any type of paycheck stub that outlines how much you were paid
If you are paid under the table, you will earn your entire gross income, because no deductions will be taken out of your pay. Wow! More money in your pocket. That sounds like a great thing, right? Not necessarily…
First off, it is illegal for an employer to not report the earnings they pay you! It may seem like your employer is offering you a great benefit - more money, you don’t have to worry about cashing your paycheck, etc. However, this is really benefiting your employer more than it is benefiting you. When your employer doesn’t report your earnings to the government, that employer no longer has to pay your share of required employee benefits and taxes such as unemployment insurance, worker’s compensation, and Social Security. If you were to unexpectedly lose your job due to no fault of your own, unemployment insurance would pay you a small amount of your previous income while you look for a new job. If you were to be injured on the job (whether seriously or just a minor injury), worker’s compensation helps pay for your medical expenses. Social Security is the nation’s retirement program. Every employee and employer pays an equal percentage of an employee’s pay to Social Security. Then, when you as the employee retire, you receive money every month. Paying into Social Security also makes you eligible for disability and survivor (like life insurance for parents or spouses) benefits Guess what happens when your employer doesn’t report your earnings and therefore does not pay your portion of these benefits… you aren’t covered under these benefits! If you are injured on the job guess who gets to pay the medical expenses? YOU!
Maybe you’re thinking at this point “So what? I don’t get taxes taken out of my check so I can use that extra money to make up for the lack of other benefits.” However, according to the government, you must pay taxes on any money that you earn or receive. That means, you got it, that you should still report the money that was paid “under the table” to the government on your yearly tax return and pay taxes on that money. If you don’t report your “under the table” earnings, you are now completing an illegal act! And chances are, since you didn’t pay taxes in small amounts every month, you will have a hard time paying all of your taxes owed for the year in one lump sum. Also, you won’t receive any documentation from your employer outlining how much money you made over the year, so you are now responsible for keeping track of that information.
Oh no! You are now remembering your old neighbor, Mrs. Mulligan. She was such a sweet lady. She couldn’t mow her own lawn, so you mowed it for her and she paid you $10 in cash every time. Was Mrs. Mulligan performing an illegal act by paying you in cash?! Were you performing an illegal act by not paying taxes on the $100 you earned that summer?! Don’t worry too much. There are times, especially with teenagers, when small odd jobs are completed and a person is paid in cash, such as mowing lawns, babysitting, etc. This is usually ok… as long as the employee doesn’t earn more than $600. However, we stress the word “usually”…tax laws are vast and confusing. In regards to whether or not you need to file a tax return to pay taxes on that cash earned, you will want to refer to the IRS’s “Filing Requirements Chart for Most Taxpayers” (1). Depending upon your age and marital status, there are minimum limits regarding how much income you need to have in order to be required by law to file a tax return (2). However, like we said before, tax laws are vast and confusing. If you are ever unsure of whether or not you need to report income received in cash, ask an accountant.
There are certain times when it is ok for an employer to report your pay to the government but not deduct taxes (when an employee is considered an independent contractor). However, no matter what, an employer should always report your earnings and provide you with some type of government form that outlines what earnings you made throughout the year.
Whew! Getting paid under the table can be confusing! Try to remember these points:
To protect yourself, report all income you earn on your tax return, no matter how it was received.
A good rule of thumb is that if you are a steady, long-term employee earning more than $600, your employer should report your earnings and provide you with a government form that outlines your earnings.
If you are ever put in a situation where an employer wants to pay you under the table, insist that you would be more comfortable if you were not paid in that manner.
1. Internal Revenue Service - http://www.irs.gov/formspubs/article/0,,id=232571,00.html
2. Internal Revenue Service IRS’s Filing Requirements Chart for Most Taxpayers - http://www.irs.gov/publications/p501/ar01.html#en_US_2010_publink1000220675